FOMC Speaks...Market Reacts...10.8.14

A boomerang day after the market dropped sharply at the open then rallied like a runner on steroids right into the close.  Tomorrow we'll get a better perspective on how much of today's pop was short covering protection.
I'm working on the final integration of the Beta and M3 models to produce a new version of M3 that will be a true Long/Short model...without ever having to actually assume a short position. The new M3 will be both simpler and more sophisticated than the previous version.
Here's today's closing view of the main panel>>>>>

Yikes!...10.7.14

Not a good day as the indices all fell at least 1.25% and cratered into the close on accelerating volume,  There's pretty good evidence that we're in a sustained downtrend and are currently on a critical ledge of support.  A breakdown beyond these levels could take SPY down to 185 (10 points away) so this is not a time to get frisky with false bottoms.

Follow Through Fails.....10.6.14

A nasty pop and drop at the open and ended the day with all the major indices in the red.
The markets seem unable to shake off the blahs and the small caps (as in IWM) are showing particular weakness.
The Beta STOPS post was posted on Sunday.  Scroll down to check it out.
Beta did flash a Buy based on the rankings at the open (as did M3), but. following the posted comments on the M3 site this morning XIV maintained a steady downslope all day long and never evidenced a positive buying signal other than the rankings.  All the other dashboard metrics were red.

The Power of Stops.....10.5.14

Here's a quick look at alternative 90 day outcomes for the new Beta model using various levels of stops.
Left to right...Auto-Stop & Cash stops ON; Auto-Stop only and No stops, just the rankings.
The impact of using active stops becomes quite apparent in this light.
What to do if you're around in during market hours to monitor price breakdown to stop levels?
Most trading platform have an ALERT or conditional order feature that lets you set a stop price for auto-execution if hit.
Are there opportunity costs involved?
There have been in the past and it depends on your risk profile.  I'm in the capital preservation/drawdown mitigation camp and for me stops provide a margin of safety that I feel comfortable with.
Will stops sometimes get blown through?
On dramatic news days it can happen and has.  Using the rankings as a guide helps provide a perspective on underlying market momentum and, as we saw last week, we were able to use the cash stop to exit VXX for a 1% loss ahead of the day it declined over 6%.
How are stops calculated?
The Auto-Stop is based on a 2 day versus 5 day Coppock curve.
The cash stops are based on a 70% 5 day ATR (average trading range) calculation times a volatility factor based on the VIX premium (not the XIV premium).

Moving On Up.....10.3.14

Substantial technical improvement in the markets today and a bounce off our TrendX support line (see right side panel).
Beta is looking at cash for Monday having been stopped out of VXX yesterday for a 1% loss...BUT avoiding the 6% drop in VXX today.  The stops have made a tremendous difference in total return and this weekend we'll look at performance with and without the cash stops and the auto-stop in place.  It may make you a believer.

Is it Over?.......10.2.14

Well, maybe.  Here we are 5 minutes before the close.  The indices are green, but only a few cents each and the NYAD is holding at 1.10, much better than we've seen for days.
The SPY-X has been renamed "Beta" to better reflect its inherent strategy and, encouraging for the bulls, our VXX position was stopped out at the target 31.57....generating a 1% loss for the day and putting us in cash until we either get a re-entry signal on the VXX or some other element of the model pops into first slot.
Despite today's loss Beta has done exceptionally well over the past few weeks while M3 has dithered in cash.  Going forward the decision I'm faced with is whether or not to simply abandon M3 and focus on Beta.  The use of the inverse ETFs,ETNs in Beta does give it the ability to be used in IRA and trust accounts where short positions are not permitted so there is a clear advantage and potential increased profitability if we simply adopt the Beta format.  I'm still working on it.

JAWS Pattern and SPY-X Update....10.1.14

A truly ugly first day of the month contrary to the technical forecasts of some well respected quants.
The JAWS pattern on the SPY/SH Vixen chart below was a dramatic reflection of the day's bearish action which saw the DOW plummet 238 points and the other indices display proportional weakness.
We're now solidly in oversold territory but the close was weak and its not clear what the impetus might be to pull the markets out of the current funk.
While M3 has been sitting quietly in cash throughout the slide the new SPY-X model has been booking some nice gains and we continue to refine the capabilities of the platform to retain our gains and not dibble them away to the whip-saw drawdowns.  The stated cash stops have fired on several occasions and, combined with the re-entry stops, have delivered (or saved) a 4.5% short term gain.